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BDM International Inc/DE – ‘10-Q’ for 9/30/97

As of: Friday, 11/14/97 · For: 9/30/97 · Accession #: 870763-97-20 · File #: 0-23966

  As Of                Filer                Filing    For·On·As Docs:Size

11/14/97  BDM International Inc/DE          10-Q        9/30/97    3:41K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      13     73K 
 2: EX-11       Statement re: Computation of Earnings Per Share        1      5K 
 3: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Financial Statements Managements' Discussion and Analysis
1	1st Page - Filing Submission
2	Item 1. Financial Statements
9	Item 2. Managements' Discussion and Analysis
11	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 13 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 Form 10-Q

 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
EXCHANGE ACT OF 1934

For the quarter                             Commission File             
ended:   September 30, 1997                 Number:  000-23966          

 BDM International, Inc.
(Exact name of registrant as specified in its charter)

Delaware                            54-1561881          
(State or other jurisdiction of              (I.R.S. Employer             
incorporation or organization)               Identification No.)          

1501 BDM Way, McLean, Virginia               22102-3204                   
(Address of principal executive office)      (Zip Code)                   

 Registrant's telephone number
 including area code: 703-848-5000

Not Applicable
(Former name, former address, and former fiscal year, if
changed since last report)

 Indicate  by check  mark  whether  the  registrant  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No                              

 As of the close of business on October 31, 1997, the registrant had outstanding
29,711,492 shares of Common Stock, par value $.01 per share.                    

10-Q 2nd Page of 13 TOC 1st Previous Next ↓Bottom Just 2nd
PART I

Item 1.  Financial Statements.                                                  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

BDM International, Inc.:                                                        

Consolidated Balance Sheets as of                                       
       September 30, 1997 (Unaudited) and December 31, 1996..................2

Consolidated Statements of Operations for the                           
       Three and Nine Months Ended September 30, 1997 and 1996 (Unaudited) ..3

Condensed Consolidated Statements of Cash Flow for the                  
       Nine Months Ended September 30, 1997 and 1996 (Unaudited) ............4

   Notes to Consolidated Financial Statements (Unaudited) ...................5

10-Q 3rd Page of 13 TOC 1st Previous Next ↓Bottom Just 3rd
 BDM INTERNATIONAL, INC.
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)

                                                        [Enlarge/Download Table]


                                                                September 30,        December 31, 
                                                                     1997               1996      
                                                              -----------------  -----------------
                                                                 (unaudited)                      

ASSETS                                                                                            
                                                                                                  
Current assets:                                                                                   
Cash and cash equivalents                                     $         51,212    $        79,376 
Accounts receivable, net                                               282,558            234,105 
Prepaid expenses and other                                              24,191              7,695 
                                                              -----------------  -----------------
  Total current assets                                                 357,961            321,176 

Property and equipment, net                                             59,616             48,519 
Intangible assets, net                                                  65,435             35,881 
Deposits and other                                                       7,728              9,586 
Equity in and advances to affiliates                                     6,414              5,492 
                                                              -----------------  -----------------
  Total assets                                                $        497,154    $       420,654 
                                                              =================  =================

LIABILITIES AND STOCKHOLDERS' EQUITY                                                              

Current liabilities:                                                                              
Accounts payable and accrued expenses                         $        156,160    $       164,399 
Debt currently payable                                                   7,987              3,487 
Income taxes payable                                                     5,231              5,230 
Deferred tax liability                                                  21,313             11,155 
                                                              -----------------  -----------------
  Total current liabilities                                            190,691            184,271 

Deferred tax liability                                                   1,674              2,544 
Long term debt                                                          81,033             22,813 
Severance and other                                                     10,676             13,911 
Minority interest                                                       30,285             29,860 
                                                              -----------------  -----------------
  Total liabilities                                                    314,359            253,399 
                                                              -----------------  -----------------

Commitments and contingencies                                                                     

Stockholders' equity:                                                                             
Preferred stock, $.01 par value;                                           -                  -   
  500,000 shares authorized, none issued                                                          
Common  stock,  $.01 par value;  29,614,947  and  14,414,020                                      
  shares  issued and outstanding at September 30, 1997 and                                        
  December 31, 1996, respectively                                          296                144 
Additional paid in capital                                             117,627            103,537 
Treasury stock                                                            (526)               -   
Retained earnings                                                       73,605             64,465 
Deferred compensation                                                   (3,463)            (1,419)
Cumulative translation adjustment                                       (4,744)               528 
                                                              -----------------  -----------------
  Total stockholders' equity                                           182,795            167,255 
                                                              -----------------  -----------------
  Total liabilities and stockholders' equity                  $        497,154    $       420,654 
                                                              =================  =================


 The accompanying notes are an integral part of these consolidated
financial statements. 

10-Q 4th Page of 13 TOC 1st Previous Next ↓Bottom Just 4th
 BDM INTERNATIONAL, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
 (unaudited)

                                                        [Enlarge/Download Table]


                                                 For the three months               For the nine months       
                                                  ended September 30,                ended September 30,      
                                                 --------------------               --------------------      
                                                 1997              1996             1997              1996    
                                                 ----              ----             ----              ----    

Revenue                                   $      294,949    $      246,766    $    818,316       $    723,727 
                                                                                                              
                                          --------------    --------------    -------------      ------------ 

Cost of sales                                    262,925           205,133          700,319           605,359 
Selling, general and administrative               27,365            23,454           79,285            67,223 
Depreciation, amortization and other               5,593             4,474           15,503            13,068 
Provision for restructuring                          -               5,760              -               5,760 
                                          --------------    --------------    -------------      ------------ 

      Operating profit (loss)                       (934)            7,945           23,209            32,317 

Interest (income) expense, net                       658              (452)             (30)           (1,465)
Equity in earnings of affiliates                    (303)             (374)          (1,230)           (1,290)
Minority interest                                  2,342             1,818            8,261             6,997 
                                          --------------    --------------    -------------      ------------ 

      Income (loss) before income taxes           (3,631)            6,953           16,208            28,075 

Provision (benefit) for income taxes              (1,431)            3,053            7,068            12,114 
                                          --------------    --------------    -------------      ------------ 

      Net income (loss)                   $       (2,200)   $        3,900   $        9,140     $      15,961 
                                          ==============    ==============   ==============     ============= 

Earnings (loss) per common share                                                                              
     and common share equivalent:                                                                             
  Net income (loss) per share             $        (0.07)  $          0.13   $         0.30     $        0.55 
                                          ==============   ===============   ==============     ============= 

   Weighted average common                                                                                    
     shares and common share                                                                                  
     equivalents outstanding                      29,485            30,192           30,613            28,990 
                                         ===============   ===============   ==============     ============= 


 The accompanying notes are an integral part of these consolidated
financial statements. 

10-Q 5th Page of 13 TOC 1st Previous Next ↓Bottom Just 5th
 BDM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
 For the nine months ended September 30, 1997 and 1996
 (unaudited, in thousands)

                                                                [Download Table]

                                                        For the nine months ended
                                                              September 30,      
                                                          1997          1996     
                                                                                 
                                                       ----------    ----------  
Cash flow from operating activities:                                             

  Net cash (used in) provided by operating activities  $  (29,625)   $   27,569  
                                                       ----------    ----------  

Cash flow from investing activities:                                             

  Additions to property and equipment                     (25,962)      (12,218) 
  Purchase of business, net of cash acquired              (33,894)       (8,695) 
  Distributions from unconsolidated affiliates                600         1,886  
  Investment in unconsolidated affiliates                    (750)       (2,358) 
                                                       ----------    ----------  
  Net cash used in investing activities                   (60,006)      (21,385) 
                                                       ----------    ----------  

Cash flow from financing activities:                                             

  Net borrowings (repayments) of credit facility           68,804       (26,203) 
  Repayment of debt                                        (7,382)       (1,954) 
  Proceeds from issuance of common stock                    8,138        28,363  
  Payment of dividend                                      (2,162)       (2,013) 
  Acquisition of treasury stock                              (526)          -    
                                                       ----------    ----------  
  Net cash provided by (used in) financing activities      66,872        (1,807) 
                                                       ----------    ----------  

Effect of exchange rate changes on cash                                          
  and cash equivalents                                     (5,405)       (2,280) 
                                                       -----------   ----------- 

Net (decrease) increase in cash and cash equivalents      (28,164)        2,097  

Cash and cash equivalents, beginning of period             79,376        69,143  
                                                       ----------     ---------  

Cash and cash equivalents, end of period               $   51,212     $  71,240  
                                                       ==========     =========  


 The accompanying notes are an integral part of these consolidated
financial statements. 

10-Q 6th Page of 13 TOC 1st Previous Next ↓Bottom Just 6th
 BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

(1)      General                                                                
-------                                                       

         The accompanying  financial  statements of BDM International,  Inc. and
its  subsidiaries  (BDM or the Company) as of September 30, 1997 and for interim
periods ended  September 30, 1997 and 1996, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The balance  sheet data as of December 31, 1996,  was derived from the Company's
audited financial statements. Certain other information and disclosures included
in the  Company's  annual  financial  statements  prepared  in  accordance  with
generally accepted accounting principles have been condensed or omitted pursuant
to the above  referenced  rules and  regulations.  It is  suggested  that  these
financial  statements be read in  conjunction  with the  consolidated  financial
statements and the notes thereto  included in the Company's latest annual report
to the Securities and Exchange Commission on Form 10-K.                         

         The  accompanying   consolidated   financial   statements  reflect  all
adjustments  and  reclassifications  that,  in the  opinion of  management,  are
necessary for a fair  presentation.  All such adjustments and  reclassifications
have been deemed to be of a recurring nature except as described in this report.

(2)      Income Taxes                                                           
------------                                                  

         The Company uses the estimated annual effective rate method for interim
income tax purposes.  The  difference  between the combined  statutory  federal,
state,  and foreign  income tax rate of 42% and the Company's  actual  effective
income tax rate for the three and nine months ended September 30, 1997 and 1996,
is primarily  attributable to goodwill  amortization which is not deductible for
federal income tax purposes.                                                    

(3)      Earnings Per Share                                                     
------------------                                            

         Net  income  per common  share is net  income  divided by the  weighted
average number of common shares and common share equivalents  outstanding during
the period.  The Company's  common share  equivalents  consist entirely of stock
options. For the three months ended September 30, 1997, common share equivalents
were excluded from the computation of weighted  average shares because they were
anti-dilutive.                                                                  

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards No. 128, "Earnings per Share" (FAS
128).  FAS 128  simplifies  the existing  earnings per share (EPS)  computations
under Accounting  Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure  requirements,  and  increases  the  comparability  of EPS data on an
international  basis. In simplifying the EPS  computations,  the presentation of
primary EPS is replaced with basic EPS, with the principal difference being that
common stock equivalents are not considered in computing basic EPS. In addition,
FAS 128  requires  dual  presentation  of  basic  and  diluted  EPS.  FAS 128 is
effective for financial  statements issued for periods ending after December 15,
1997. Had FAS 128 been effective for the third quarter of 1997,  basic EPS would
have been  $(0.07) and $0.31 for the three and nine months ended  September  30,
1997 and $0.14 and $0.59 for the three and nine months ended September 30, 1996.
Diluted  EPS would  have been  $(0.07)  and $0.30 for the three and nine  months
ended September 30, 1997 and $0.13 and $0.55 for the three and nine months ended
September 30, 1996.                                                             

10-Q 7th Page of 13 TOC 1st Previous Next ↓Bottom Just 7th
 BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

(4)      Capital stock transactions                                             
--------------------------                                    

         On February  21, 1997,  the  Company's  Board of  Directors  declared a
two-for-one  split of the  Company's  common  shares,  effected in the form of a
stock  dividend,  to shareholders of record as of the close of business on March
6, 1997.  Distribution of the additional shares took place on March 20, 1997. In
connection  with the  split,  the  Company's  Board of  Directors  approved  the
increase  in the number of shares of Common  Stock  authorized  for  issuance to
100,000,000  shares,  subject to approval of shareholders  which was received on
May 9,  1997.  The  shares  and per  share  data in the  consolidated  financial
statements have been restated to reflect this stock split.                      

(5)      Acquisitions                                                           
------------                                                  

         On April 30, 1997,  the Company  acquired  Largotim  Holdings,  Ltd., a
worldwide  distributor and integrator of enterprise  resource  planning software
and solutions, for approximately $39 million. The transaction has been accounted
for as a purchase,  resulting  in goodwill  of  approximately  $21 million to be
amortized over fifteen years.  Included in the purchase price is the acquisition
of intangible assets of approximately $15 million,  which will be amortized over
periods  ranging  from four to fifteen  years.  The  transaction  also  provides
additional consideration to the sellers if certain profitability targets are met
by December 31, 1998.                                                           

         During 1996, the Company  completed several  acquisitions.  On February
20, 1996, the Company acquired three affiliated companies - CW Systems, Inc., IG
Systems,  Inc.  and Melco  Systems,  Inc.  - for  $18.5  million.  The  acquired
companies specialize in providing information technology systems and services to
large  commercial  organizations  in various  industries,  as well as to various
state  agencies.  On November 4, 1996,  the Company  purchased the operations of
RGTI Systems Software,  a company specializing in warehouse management solutions
for $18.4 million.  Effective  November 1, 1996, the Company acquired the assets
of two related  companies,  Advances  Systems  Design,  Inc.  (ASD) and Software
Engineering,  Inc. (SEI) for $4.8 million.  These companies  provide services in
state and local government human services systems design and development.       

         These  acquisitions  were  accounted  for as purchases  with  aggregate
goodwill of  approximately  $25 million in 1996. The results of their operations
are  included  in the  consolidated  results  of the  Company  from the dates of
acquisition.                                                                    

(6)      Restructuring                                                          
-------------                                                 

         The Company announced a new alignment of its business operations during
the third  quarter of 1996.  This new  organization  consists of five  strategic
business units - Federal  Systems,  State and Local Systems,  Integrated  Supply
Chain Solutions, BDM Europe and Enterprise Management Services. In addition, the
new BDM  Technologies  will comprise  development  units focused on promising IT
areas.  This  organizational  realignment  resulted  in a pre-tax  restructuring
charge  of $5.8  million  to 1996  third  quarter  earnings,  which  included  a
write-down  of $3.1 million of certain  assets of Geoscience  Consultants,  Ltd.
(GCL),  severance  costs  totaling $1.8 million for  approximately  40 employees
across several  subsidiaries,  and the accrual of approximately $0.9 million for
certain facility expenses. The write-down at GCL affected primarily goodwill and
fixed assets,  and was determined based on analyses of future cash flow expected
from that area of business after changes in strategic  direction  resulting from
the business  realignment.  During the fourth quarter of 1996 and the first nine
months  of 1997,  the  Company  made  payments  of  $452,000  and $1.0  million,
respectively,  against the restructuring  reserve related primarily to severance
and lease costs.  At September 30, 1997,  there was no balance  remaining in the
restructuring reserve.                                                          

10-Q 8th Page of 13 TOC 1st Previous Next ↓Bottom Just 8th
 BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

(7)      Subsequent Event - Resolution of State Government Contract             
----------------------------------------------------------    

         On  October  31,  1997,  the  Company  and a certain  state  government
customer  agreed  on a  resolution  that  ended  the  program  performance.  The
consolidated financial statements as of and for the three months ended September
30, 1997,  have been adjusted to reflect the results of this  subsequent  event.
The  Company  recorded a pre-tax  charge of $14.7  million  ($0.28 per share) to
third  quarter  earnings  representing  costs  associated  with  an  uncollected
receivable on the state government contract,  as well as miscellaneous  project,
consultant, and personnel costs.                                                

(8)      Other Matters                                                          
-------------                                                 

         The Company has been  informed  that a civil "qui tam" lawsuit has been
filed  against  the  Company and has  received a copy of the  Complaint  in that
action.  The  matter is  currently  under  Court  seal.  The  Complaint  alleges
violation  under  the  Federal  False  Claims  Act in  connection  with  certain
mischarging under overseas  government  contracts  administered by the U. S. Air
Force, related to certain housing rented in connection with overseas operations,
alleged improper hiring of and payments to certain  employees,  alleged improper
payments to a subcontractor, and alleged improper purchases and payments made in
support of client activities. Aggregate revenue from these contracts in calendar
year 1996 was approximately  $41 million.  In connection with this case, BDM has
received a subpoena for  information  in a civil  investigation  underway by the
Office of Inspector  General of the Department of Defense and an Assistant U. S.
Attorney  for the  Eastern  District  of  Virginia  with  respect to the matters
alleged in the  Complaint.  BDM will  cooperate  fully with the  Government  and
expects to make extensive document production in response to the subpoena.      

         The  Company  is engaged  in  providing  services  and  products  under
contracts  with the U. S.  Government  and, to a lesser  degree,  under  foreign
government  contracts,  some of which are  administered by the U. S. Government.
All such contracts are subject to extensive  legal and regulatory  requirements,
and  the  above  mentioned  investigation  apparently  focuses  on  whether  the
Company's  overseas  operations in connection  with the subject  contracts  were
conducted  in  accordance  with  such  requirements.  The  lawsuit  and  related
investigation  could result in  administrative,  civil or criminal  liabilities,
including reimbursements, fines or penalties being imposed. Under the provisions
of the False  Claims Act, a civil  penalty of between  $5,000 and $10,000 can be
assessed for each claim, plus three times the amount of any damages sustained by
the Government.  The Complaint seeks such relief but does not specify the amount
of damages.  In addition  to damages,  a finding of civil or criminal  liability
could lead to suspension or debarment of the contractor if it is found to be not
currently  responsible,  which  would  make  some  or all  of  the  contractor's
operations  ineligible to be awarded U. S. Government  contracts for a period of
time.  Such civil or criminal  liability or suspension or debarment could have a
material  adverse  effect  on  the  Company.  Management  is  unable  to  make a
meaningful  estimate of the amounts or range of loss that could result from this
litigation, however, management does not anticipate that the ultimate resolution
of this  litigation  will have a material  effect on the Company's  consolidated
financial position.                                                             

10-Q 9th Page of 13 TOC 1st Previous Next ↓Bottom Just 9th
Item 2.  Managements' Discussion and Analysis                                   
-------  ------------------------------------                                   

OVERVIEW                                                                        
--------                                                                        

         A significant  revenue increase of 20% was posted for the third quarter
of 1997 compared to the same period in 1996. This was  accomplished  despite the
unfavorable  effects from the impact of exchange rates which would have produced
a 23% increase and a certain state government  contract in which $2.4 million of
revenue was not  recognized  for the quarter.  Net loss of $2.2 million and loss
per share of $0.07 for the quarter  were also  affected by the state  government
contract and the  unfavorable  exchange  rates.  As was announced on November 3,
1997, the Company and a certain state government customer agreed on a resolution
which ended the program  performance.  In connection with this  resolution,  the
Company  took a  pre-tax  charge of $14.7  million  ($0.28  per  share) to third
quarter earnings representing costs associated with an uncollected receivable on
the contract, as well as miscellaneous project, consultant, and personnel costs.

         For the nine months ended September 30, 1997, revenue was $818 million,
up 13% over the comparable  period in 1996 (16% excluding  exchange rates).  Net
income  was $9.1  million  and  earnings  per share was $0.30 for the nine month
period.  Contract  backlog as of September 30, 1997,  increased to $2.4 billion,
largely due to  significant  awards in the past three months.  As proposals were
converted to awards, the proposal backlog declined to approximately $1.1 billion
as of  September  30,  1997,  down from $1.4 billion as of the end of the second
quarter of 1997.                                                                

REVENUE                                                                         
-------                                                                         

                                                        [Enlarge/Download Table]

                                   Three months ended  September 30,   Nine months ended September 30,  
                                   (in millions, except percentages)  (in millions, except percentages) 

                                     1997      %       1996      %       1997      %        1996       %
                                     ----      -       ----      -       ----      -        ----       -
                                                                                                        
Strategic Business Unit                                                                                 
-----------------------                                                                                 
Federal Systems                    $116.8     39%    $118.7     48%    $342.5     42%     $353.4     49%
Enterprise Management Services       84.8     29%      50.0     20%     212.2     26%      145.7     20%
BDM Europe                           40.5     14%      49.7     20%     127.3     16%      150.1     21%
Integrated Supply Chain Solutions    25.0      8%       7.5      3%      61.6      7%       17.6      2%
State and Local Systems              13.8      5%      10.9      5%      39.0      5%       32.5      5%
BDM Technologies                     14.0      5%      10.0      4%      35.7      4%       24.4      3%
                                   ------    ---     ------    ---     ------    ---      ------    --- 
     Total                         $294.9    100%    $246.8    100%    $818.3    100%     $723.7    100%
                                   ======    ===     ======    ===     ======    ===      ======    === 

Client Category                                                                                         
---------------                                                                                         
US Department of Defense           $ 85.4     29%    $ 91.9     37%    $251.4     31%     $278.3     38%
International Defense                90.5     30%      61.2     25%     239.3     29%      177.6     26%
Civil Government                     48.7     17%      53.8     22%     143.9     18%      154.8     20%
Commercial                           70.3     24%      39.9     16%     183.7     22%      113.0     16%
                                   ------    ---     ------    ---     ------    ---      ------    --- 
     Total                         $294.9    100%    $246.8    100%    $818.3    100%     $723.7    100%
                                   ======    ===     ======    ===     ======    ===      ======    === 

Services Provided                                                                                       
-----------------                                                                                       
Information Technology              139.7     47%    $104.3     42%     402.0     49%     $311.5     43%
Technical Services                  132.5     45%     108.1     44%     350.6     43%      320.5     44%
Enterprise Management                22.7      8%      34.4     14%      65.7      8%       91.7     13%
                                   ------    ---     ------    ---     ------    ---     -------    --- 
     Total                         $294.9    100%    $246.8    100%    $818.3    100%     $723.7    100%
                                   ======    ===     ======    ===     ======    ===     =======    === 


10-Q 10th Page of 13 TOC 1st Previous Next ↓Bottom Just 10th
Revenue by Strategic Business Unit                                              
----------------------------------                                              
         Federal Systems:  Revenue from Federal Systems  decreased 2% and 3% for
         the three and nine  months  ended  September  30,  1997,  respectively,
         compared  with the same  periods in 1996.  The  Company  experienced  a
         decrease   in  revenue   from   indefinite-delivery/indefinite-quantity
         (ID/IQ)  contracts.  Task  orders on these  contracts  have been  below
         expectations as Federal agencies determine how to allocate  information
         technology  budgets  between  Year 2000  projects  and  other  critical
         technology   requirements.   In  particular,   the  amount  of  revenue
         contribution  from   subcontractors  was  below   expectations.   These
         reductions  were  partially  offset by  increases  on a number of other
         contracts  relating to information  technology  services and support as
         well as the delivery of a hardware  pass-through which slipped from the
second to the third quarter of 1997.                          

         Enterprise  Management  Services:  Revenue from  Enterprise  Management
         Services grew 70% and 46% for the three and nine months ended September
         30, 1997, respectively,  compared to similar periods last year. This is
         a result of higher  revenue in most aspects of its business,  including
         its technical services and training work in Saudi Arabia with increased
         levels of directed  purchases  during the quarter and the operations of
         Job Corps  Centers.  This  growth was  partially  offset by a reduction
         resulting  from the end of the  Company's  contract to provide  support
         services at a US Air Force  Base.  Revenue  from the  Bradley  Fighting
         Vehicle  contract will be down temporarily in the fourth quarter due to
         funding  shortfalls.   It  is  expected  that  an  amendment  providing
additional funding will be signed during the fourth quarter.  

         BDM Europe:  Revenue from BDM Europe declined largely due to the impact
         of unfavorable  exchange rates,  which amounted to $8.4 million for the
         third quarter and $19.5 million for the nine months ended September 30,
         1997. Lower pass-through contracts from the German government were also
a contributing factor.                                        

         Integrated Supply Chain Solutions: Revenue from Integrated Supply Chain
         Solutions  doubled  in the third  quarter  of 1997 over the prior  year
         period, and nearly tripled for the nine month period in 1997 over 1996.
         This growth reflects a rapid increase in the Company's organic business
         in the third  quarter,  as well as revenue  from the  Largotim and RGTI
         acquisitions.  Growth in organic  business is derived from new contract
         awards in enterprise resource planning (ERP),  business  transformation
         services and solutions,  manufacturing control systems integration, and
warehouse management systems.                                 

         State and Local  Systems:  Revenue  increased 27% and 20% for the three
         and nine months ended September 30, 1997,  compared to the same periods
         in the prior year.  The increases  were  primarily  driven by Year 2000
         work for various  state  governments,  as well as the impact of the ASD
         acquisition  completed  at  the  end  of  1996.  These  increases  were
         partially  offset  by  declines  in other  areas  of  state  government
         business. In particular,  as was previously disclosed,  the Company has
         experienced  difficulties  on one of its  state  contracts  and did not
         recognize revenue for services on this contract.  As mentioned above, a
         resolution  was agreed  subsequent to  quarter-end  which resulted in a
charge to earnings recognized in the third quarter.           

         BDM Technologies: Revenue grew 40% for the quarter and 46% for the nine
         months of 1997,  compared to last year.  This business  unit  comprises
         several  developmental units including the Company's Year 2000 solution
         offerings,  Internet/Intranet  Technology,  Network  Security,  and  IT
         Services.  In  particular,  the rapid  organic  growth of the Year 2000
         projects  created  the  expansion  in  BDM  Technologies.  Due  to  the
         developmental  nature of this unit,  the quarterly  results may be more
variable than those of the strategic business units.          

Revenue by Client Category                                                      
--------------------------                                                      
         US Department of Defense (DOD):  Revenue derived from the US Department
         of Defense  (DOD)  decreased  7% and 10% for the three and nine  months
         ended September 30, 1997, respectively,  compared with the same periods
         in 1996.  The  decline  in revenue  is due to lower  activity  on ID/IQ
         contracts as described above. These reductions were partially offset by
         increases  in a  number  of  other  contracts,  including  systems  and
         services for the National Guard and support for major military programs
such as ballistic missile defense.                            

         International  Defense:  Revenue from  international  defense  business
         increased 48% and 35% for the three and nine months ended September 30,
         1997,  over the comparable  periods in the previous year, due to higher
         revenue from the Company's  contracts in Saudi Arabia.  This growth was
         somewhat offset by the unfavorable impact of changes in exchange rates,
         as the US dollar  continued  to grow  stronger  compared  to the German
mark.                                                         

         Civil Government:  Revenue from civil government  contracts declined 9%
         and 7% for the three and nine month periods  ended  September 30, 1997,
         compared to the same periods in 1996.  This decline  reflected  several
         factors  cited in earlier  disclosures,  including a decline in revenue
         from  environmental  restoration and waste management  programs for the
         Department of Energy as a result of continued  budget  reductions,  and
         the effect of  difficulties  encountered on a certain state  government
         contract.  Lower pass-through  contracts from the German government and
         the  decline  of the  German  mark  versus  the  US  dollar  were  also
         contributing  factors.  These  reductions were partially offset by work
         performed  for various state  governments  on Year 2000 projects and an
    increase in revenue from the Company's Job Corps Center contracts.

         Commercial:  The increase of 76% and 63% in commercial  revenue for the
         three and nine months  ended  September  30,  1997,  reflects the rapid
         organic growth of BDM's  commercial  business,  as well as acquisitions
         during 1996 and 1997 of enterprises serving commercial  customers.  The
         Company's  organic  growth is the result of both Year 2000 projects and
         Integrated Supply Chain Solutions  business.  International  commercial
         business was impacted by the aforementioned  decline in the German mark
         to the US  dollar.  Excluding  the  impact  of  currency  fluctuations,
         commercial  revenue  would have  increased  86% in the third quarter of
1997.                                                         

Revenue by Services Provided                                                    
----------------------------                                                    
         Information  Technology:  Includes all  activities  where the principal
         result  of  the  effort  (1)  pertains  to  the  requirements,  design,
         implementation, operation, or maintenance of an information system; (2)
         utilizes one or more information  technology  products as the principal
         means of  producing  results;  or (3)  relates  directly  to studies or
         analysis  wherein the dominant aspect is information  technology or the
         application of information  technology.  Revenue in this area increased
         34% and 29% for the three and nine months  ended  September  30,  1997,
         respectively,  compared to the same periods in 1996.  This increase was
         driven by  higher  information  technology  revenue  in the  Integrated
         Supply Chain Solutions and BDM Technologies  business units, as well as
         Year 2000 work with  commercial  and state  customers  and revenue from
companies acquired in 1997 and 1996.                          

         Technical Services: Includes a broad range of scientific,  engineering,
         technical assistance,  and consulting services that are not encompassed
         in the  information  technology  category  described  above.  Technical
         Services  revenue  grew 23% in the  third  quarter  and 9% for the nine
         months  of 1997,  reflecting  growth  in a number  of  contracts  for a
         variety of military programs.  These increases were partially offset by
         lower services revenue from the German Ministry of Defense (in part due
to the strong US dollar).                                     

         Enterprise Management: Represents business in which the Company manages
         and operates  research and development  centers and other facilities on
         behalf of its customers.  An increase in the Company's Job Corps Center
         business  was offset by a decline  due to the  completion  of a support
         contract  at a US Air Force  Base.  In  addition,  the  program for the
         National  Institute  of Petroleum  Research  changed at the end of 1996
         when a portion of the management and operations  contract was converted
         to a separate contract to perform research and technical services. This
portion of revenue is now classified as Technical Services.   

RESULTS OF OPERATIONS                                                           
---------------------                                                           
The  following  table  sets  forth  selected  financial  data,  expressed  as  a
percentage of revenue:                                                          

                                                        [Enlarge/Download Table]

                                            Three Months Ended     Nine Months Ended    
                                               September 30,          September 30,     
                                                                                        
                                           1997           1996    1997             1996 
                                           ----           ----    ----             ---- 

Revenue                                   100.0%         100.0%  100.0%           100.0%

Cost of sales                              89.1           83.1    85.6             83.6 
Selling,   general,  and  administrative    9.3            9.5     9.7              9.3 
Depreciation, amortization, and other       1.9            1.8     1.9              1.8 
Provision for restructuring                  -             2.4      -               0.8 
                                          -----          -----   -----            ----- 

     Operating profit (loss)               (0.3)           3.2     2.8              4.5 

Interest expense (income), net              0.2           (0.2)    0.0             (0.2)
Equity in earnings of affiliates           (0.1)          (0.1)   (0.2)            (0.2)
Minority interest                           0.8            0.7     1.0              1.0 
                                          -----          -----   -----            ----- 

     Income (loss) before taxes            (1.2)           2.8     2.0              3.9 

Provision (benefit) for income taxes       (0.5)           1.2     0.9              1.7 
                                          -----          -----   -----            ----- 

     Net income (loss)                     (0.7)%          1.6%    1.1%             2.2%
                                          =====          =====   =====            ===== 


COST OF SALES                                                                   
-------------                                                                   
         Cost  of  sales,  which  includes  salaries,  benefits,   subcontractor
expenses,  materials and overhead costs, increased as a percentage of revenue in
the three and nine months ended September 30, 1997, compared to the same periods
in 1996, due to a charge of $14.7 million  related to the  aforementioned  state
contract.  In addition,  there is a higher level of hardware  pass-throughs  and
other  directed  purchases.  These  pass-throughs  represent the  procurement of
computer hardware and other equipment on behalf of customers,  and often tend to
yield lower profit margins than revenue from services.                          

SELLING, GENERAL, AND ADMINISTRATIVE                                            
------------------------------------                                            
         Selling, general, and administrative (SG&A) expense, which includes the
Company's  research and  development  costs (R&D),  decreased as a percentage of
revenue for the three months  ended  September  30, 1997,  compared to the third
quarter of 1996. This decrease was due mainly to the impact of a higher level of
hardware  pass-throughs  and other  directed  purchases in the third  quarter of
1997,  compared to the same period in 1996.  These hardware sales had less of an
impact on the nine-month  period,  in which the investments made for recruiting,
marketing,   and  research  and  development,   primarily  related  to  software
development  and  enhancements,   are  reflected  in  a  higher  cost  of  sales
percentage.  These  investments  were focused on the Company's Year 2000 efforts
and Integrated Supply Chain  activities.  The increase also includes the SG&A of
several  commercial  companies  acquired during 1997 and 1996, which have higher
SG&A consistent with typical commercial operations.                             

DEPRECIATION, AMORTIZATION, AND OTHER                                           
-------------------------------------                                           
         Depreciation,  amortization,  and other  costs  increased  in the third
quarter and the nine months of 1997,  compared to the same periods in 1996.  The
increased  depreciation  component  reflected  depreciation  expense of acquired
businesses  and an  increase  from the  implementation  of a new  financial  and
management  information system in the fourth quarter of 1996 at Federal Systems.
These  increases  were  offset  by the  impact of the  German  mark to US dollar
exchange rate on depreciation  related to fixed assets in Germany.  Amortization
expense  increased  for the three and nine  months  ended  September  30,  1997,
compared  to the same  periods in the prior  year,  reflecting  amortization  of
goodwill and other  intangible  assets  associated with  acquisitions  completed
during 1996 and 1997.                                                           

INTEREST EXPENSE (INCOME), NET                                                  
------------------------------                                                  
         The Company  reported net interest expense of $.7 million for the third
quarter of 1997,  and net  interest  income of $30,000 for the nine months ended
September 30, 1997.  This is compared to net interest  income of $.5 million and
$1.5  million  for the  comparable  periods in 1996,  respectively.  This change
reflects interest costs on acquisitions  completed during 1996 and 1997, as well
as lower advances from customers in Germany that reduced interest earned on cash
balances.                                                                       

EQUITY IN EARNINGS OF AFFILIATES                                                
--------------------------------                                                
         Equity in earnings of  affiliates  represents  the  Company's  share of
earnings  from  unconsolidated  joint  ventures.  These  amounts  have  remained
relatively stable compared to the prior year period.                            

MINORITY INTEREST                                                               
-----------------                                                               
         The  minority  interest  share of earnings  increased  during the third
quarter of 1997, compared to the same period in the previous year. This increase
reflects the improved profitability of IABG and the joint ventures in the Middle
East.                                                                           

PROVISION FOR INCOME TAXES                                                      
--------------------------                                                      
         The  difference  between the combined  statutory  federal,  state,  and
foreign  income tax rate of 42% and the Company's  actual  effective  income tax
rate is primarily  attributable  to certain  goodwill  amortization  that is not
deductible for federal income tax purposes.                                     

LIQUIDITY  AND CAPITAL  RESOURCES                                               
-------------------------------                                                 
         The Company's cash flow from operating  activities reflects an increase
in days sales outstanding,  and lower advances from international customers than
in prior  periods.  A high level of hardware  pass-throughs  and other  directed
purchases  late in the third  quarter  of 1997 was a  significant  driver of the
increase  in days  sales  outstanding.  Cash from other  aspects  of  operations
partially  offset  this  reduction  in  cash  flow,  and a  slight  increase  in
borrowings on the Company's  revolving credit agreement also provided additional
resources to cover peak cash needs during the period.                           

         Cash flow related to investing activities included cash paid to acquire
businesses,  including $32.1 million paid for Largotim and $1.8 million for ASD.
Capital  expenditures  of $26 million  included a cash payment of  approximately
$7.6  million  made in the first  quarter  of 1997  related to the  purchase  of
property by the Company's  German  subsidiary,  IABG.  IABG also made a dividend
payment in the third quarter of 1997, $2.2 million of which was paid to minority
owners.                                                                         

         Financing  activities  consisted  primarily of changes in borrowings on
the  Company's  working  capital  facility for the  acquisition  of Largotim and
repayment  of other  acquisition  debt.  In addition,  the Company  continued to
provide a benefit to  employees  by enabling  them to purchase  shares of common
stock  through  stock option  exercises  and an employee  stock  purchase  plan.
Financing  cash flow for the first  quarter of the prior year also  included the
net proceeds from a public stock offering of $15.3 million completed in March of
1996.                                                                           

 ***

         The  foregoing  discussion  of various  factors  that may  impact  1997
performance contain certain forward looking statements. In addition, the Company
or its  representatives  from time to time may make or have made certain forward
looking statements.  Those forward looking statements made by the Company or its
representatives  are qualified in their  entirety by reference to the discussion
in this  document and other public  documents,  and the  discussion of important
factors that could cause the Company's actual results to differ  materially from
those projected or discussed in those forward looking statements. It is intended
that the foregoing constitute  meaningful  cautionary statements so as to obtain
the  protections  of the safe  harbor  established  for such  statements  by the
Private Securities Litigation Reform Act of 1995.                               

 # # #

10-Q 11th Page of 13 TOC 1st Previous Next ↓Bottom Just 11th
 PART II

Item 6.   Exhibits and Reports on Form 8-K.                                     
-------   ---------------------------------                                     
(a)   Exhibits:                                               

11.1      Statement of Computation of Earnings Per Share      

(b)   Reports on Form 8-K:                                    

None.                                       

10-Q 12th Page of 13 TOC 1st Previous Next ↓Bottom Just 12th
 BDM INTERNATIONAL, INC.

SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.                                          

November 14, 1997                        BDM INTERNATIONAL, INC.                

                         C. Thomas Faulders, III
                         -----------------------
                         C. Thomas Faulders, III
                                         Executive Vice President, Treasurer and
                         Chief Financial Officer

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BDM INTERNATIONAL, INC. 

 INDEX TO EXHIBITS

Exhibit No.                                                                     

11.1     Statement of Computation of Earnings Per Share

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Dates Referenced Herein and Documents Incorporated by Reference

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	12/31/98	7
	12/15/97	6
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Filed on:	11/14/97	12
	11/3/97	9
	10/31/97	1	8
For Period End:	9/30/97	1	10
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BDM International Inc/DE – ‘10-Q’ for 9/30/97

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